Capital gains tax these days is getting more relevant as the price of property has increased considerably since 1 October 2001 when capital gains tax was implemented in South Africa.

Should you sell your primary residence (registered in your personal name) and the capital gain exceeds R2 million, it may be beneficial to contact your tax consultant to ensure that you will be left with the highest possible gain after having paid the South African Revenue Services.

Improvement cost includes all additions over the years such as alterations, improvements, alarm system, new plants, paving, etc.

In addition, should you decide to put your property on the market and aim for a higher selling price by doing repairs and painting before selling, SARS allow for these costs to be deducted as improvements.

It is therefore important that each homeowner keep a file with proper records of the initial purchase costs as well as all further capital improvements and relevant expenditures

In short: The tax that a Seller will pay after deducting all capital costs plus the R2 million primary residence exclusion is 13.3% of his capital gain(if his other taxable income.

Example 1: Selling property bought after 1 November 2001

Say Person A has an annual taxable income of R680, 000 and more and is at the maximum tax rate of 40%.

He bought his primary residence in 2002 for R2 million after 2001 when CGT was implemented, and has registered his property in his personal name. He sells the property 12 years later for R5.5 million.

Therefore R5.5 million – R2 million primary residence exclusion = R1.5 million capital gain and a further base cost of R500 000 (agents fees, improvements etc) is subtracted = R1 million capital gain. This amount will be added to his annual tax return and the effective CGT rate will be 13.3% of the R1 million or R133, 000.

Example 2: Selling property bought before 1 November 2001

Person B sold his property that he bought in 1991 (10 years before Capital gains tax started in South Africa on 1 October 2001) for R300, 000. He sold the property on 1 November 2013 (12 years after 2001) for R3 million.

If a person sells his property after 10 years, where he occupied the property as a primary residence for 7 years and rented another property for 3 years due to work circumstances, then SARS will still give him a R2 million primary residence exclusion after the 10 year period.

However, if we use the same example and he bought another property after 7 years which is close to the first property, he will be able to claim only 70% of his primary residence exemption when selling the first property 10 years later.

It is imperative that you do your capital gains tax calculations carefully and arrive at the proper base costs and deductions when selling your property.

Should you have any further questions in this regard or require tax assistance, contact the Tax Consultant Fanus Jonck (tax@jonck.net, Tel 021-914 7454).

We have decided for a limited period to provide free legal assistance to the existing clients of our office – selling or buying property – and the free service to existing clients of our office will entail that you can fax or email us your sale agreement and Meyer de Waal meyer@oostco.co.za or Mark Witzmann mark@oostco.co.za will go through the agreement and provide you with our verbal comments for this sale agreement. Why do we offer this service for free? – it saves us a lot of time afterwards, as we often receive sale agreements from estate agents, sellers or buyers that have been drawn so badly, that we spend hours afterwards to try to ‘fix” the mistakes

Over the past few weeks we have noticed some inferior deeds of sale come before of us. Once a Deed of Sale is signed which turns out to be problematic in the final execution and transfer process, it can be very difficult for the Conveyancing Attorney to do remedial work to save the transaction and hence ensure a smooth transition. This can results in a delay to transfer the property. It is very important for Sellers to obtain a legal opinion on the deed of sale, BEFORE, they sign the agreement and not to place 100% reliance on their Estate Agent. Sometimes the problems that arise are purely due to a lack of knowledge on the part of Seller coupled with a lack of knowledge or technical expertise on the part of an inexperienced agent.

FREE SERVICE – BEFORE YOU SIGN

We are therefore offering our existing client sellers a FREE SERVICE. This free service entails the scrutinizing of the Offer to Purchase BEFORE you sign it to make it an agreement that is binding on yourself. So what are the permutations that a Seller needs to know when the Offer is put under your nose?

Here is a list of some of the pitfalls to be wary about:

1. When do I get my money?

On the whole this appears to be a relatively simple question. Upon registration of transfer of your property into the Purchaser’s name, the conveyancing attorney will do the final statements of account, send it to you and pay you out when the funds appear in our trust account. This payment can happen either on the day of transfer or the next day especially where guarantees are involved as issued by the Purchaser and his bank.

Seems simple on the face of it. – but how is that purchase price made up and where does it come from? This is where the Seller needs to be careful and aware of what he is signing.

Your purchase price is made up of (preferably) a deposit and a balance purchase price.

The deposit comes in soon after signature . Deposits are good, as it shows a sign of good faith and that the Buyer means business.

The Balance of the Purchase Price can get complicated.

If the estate agent tells you that the Purchaser is selling his property then you must be alert. This is where serious complications can arise and a possible delay in the registration of your property.

Has the Purchaser sold his property already?

If so, is that sale subject to a suspensive condition? If it is, by when will that suspensive condition be fulfilled? What does this mean in plain English? Your purchaser A may have sold his property to his Purchaser B who has sold his property to his Purchaser C all subject to bonds and/or further sales for example.

All these deals are financially linked to each other and are dependent on each other and impact directly on your sale and your money arriving on time.

It is no use that your estate agent tells you that the properties are sold and that everything is fine. Your agent must ascertain at what stage each and every sale is at. And most of the time other estate agents are involved.

Please contact us NOW if you are in a situation like this or as soon as you are so that we can ascertain the status of these linked deals and report back to you.

Just recently we had a client that did not even realize the number of linked transactions below his. The client said,“ I did not even know about that transaction!! What has that got to do with me?” The answer is EVERYTHING TO DO WITH YOU.

He was referring to the third sale after his and that sale was the sale that held up all the other linked transactions, all being financially interconnected. The Seller therefore received his money late.

2. What do I do in this type of situation?

Our recommendation :

Ensure that there is a 72 hour clause/3 day clause written into your contract which allows you to receive a competing offer from another new buyer which has to then be presented to your first, original buyer. Your first buyer then has 72 hours or 3 days to either comply with his suspensive conditions or waive them depending on how the contract is specifically worded. If not, then the competing offer wins the day and the first sale is null and void.

Contact us for the full and complete wording and DO NOT DELETE THIS CLAUSE – without checking out the consequences of such – Please do not allow for this clause to be deleted as the agent may be protecting the buyer.

This can arise particularly where there is NO sole mandate involved.

Why? Because the estate agent does not want competing offers fighting against his or her offer and on an open mandate this can occur. Another agent can bring a full asking price cash offer which you will definitely accept. Then the first agent potentially loses out as his or her buyer has 72 hours to waive the suspensive conditions and may not be able to do this. If the first buyer cannot do this it is goodbye to that buyer and hello to the full asking price cash buyer!!! First agent loses all commission, second agent gets all the commission.

So insert that 72 hour clause to protect your interests- the sale of your most valuable asset!!!

And phone us when that competing offer arrives. IMMEDIATELY. We shall ensure that it is properly submitted to your first buyer as stipulated in the first contract.

3. Sectional Title: Know what you own!!

It is important for Sellers to understand what they own especially when it comes to exclusive use areas. If you cannot answer as to how you own your exclusive use areas and the agent is unsure, please contact us immediately. Exclusive use areas are not necessarily in all title deeds and could be owned in terms of the Sectional Title Rules. We shall advise YOU!!

If you do not know about a real right of extension registered over your Scheme do not expect the estate agent to know. PHONE US IMMEDIATELY.

A real right of extension allows a Developer or the Body Corporate to extend the Scheme either by the addition of further buildings, a horizontal extension or vertical extension to an existing building reserved for a period of time e.g. 25 years.

This real right of extension MUST BE DISCLOSED in the Deed of Sale BY LAW. If not, the Purchaser can walk away from the transaction. It is best to ask us to investigate this on your behalf BEFORE the contract is signed. We already are doing this for some estate agents who do not have access to this information.

4. Alterations or Extensions to your Property.

Please always do this in accordance with law by adhering to your title deed conditions and Council Regulations. Building Plans must be approved by the Council. Your architect will guide you.

If you are doing some kind of Sectional Title extension to your flat it is highly suggested that you contact us to ensure that this extension has been correctly registered. We have had a situation where this was not done, there was terrible technical misunderstanding of the issues at hand and the result of this was that the client had to lose a part of the sale proceeds by way of a retention of the purchase price- a substantial sum of money.

IF YOU HAVE A DEPOSIT AVAILABLE – MAKE USE OF “GEARING” AND LET YOUR DEPOSIT GROW ON STEROIDS!

If you have R20 000.00 saved on an investment – it may generate some income and growth – but it is only the capital value of R20 000 that will grow each year.

Invest like a seasoned investor – make use of gearing – let your R20 000 grow on steroids

if you use the same R20 000 as a deposit to buy a property – you may convince a bank to give you a home loan and use your deposit to negotiate a better home loan rate – The result will be that you will have growth on R399 000 every year – compared to growth on only R20 000 per year ( look at the prices below as example).

Calculate this over a 20 year period – usually the time it takes to pay off your bond – and you will be amazed to compare the growth of R399 000 growing each year – compared to R20 000 growing each year. Disclaimer – Please not that this an average assumption and no provision is made for capital gains tax and other expenses and to raise a home loan will depend on your financial situation and credit profile – thus terms and conditions apply and NCA rules and regulations.

IF YOU HAVE NO DEPOSIT AVAILABLE

You may think that you may not be able to invest in property right now – as you do not have a deposit available – or the best credit profile – but perhaps sufficient income every month – then perhaps get your foot in the door and buy your first property with the rent2buy concept.

Rent2buy units are available in Maitland, Mountain View Villas as well as Greenfields Development in Blackheath and Zwartland in Malmesbury.

We operate in a property market with a housing backlog of an astounding 2.1 million houses, which government says will require a “miracle” to supply. This huge demand, given that supply is constrained by dismal building and development figures over the last decade, presents a massive opportunity – for developers, for property owners and for property investors – now and in the future.

So where is the problem? The challenge The problem is that potential buyers cannot buy property, no matter how much they want to or need to, because they cannot get finance. And this means that sellers can’t sell their properties, no matter how much they want to or need to. And developers can’t sell units in new developments, no matter how enormous the demand or the housing backlog.

And buy-to-let property investors cannot supply the rapidly- growing demand for rental properties, no matter how great the shortages of rental stock. It is the inability of buyers to get finance to buy property that is strangling the local property market, and this is driven by two factors:

• The unavailability of credit; and • The cost of credit.

Unavailability of credit

After approving 80% of home loan applications and handing out 118% home loans like candy before the National Credit Act (NCA) was implemented, the banks are now turning down half of home loan applications and demanding deposits of 15% or more, which buyers have to fund from their own pockets, over and above the property acquisition costs they need to pay such as transfer duty and bond costs.

This means that even those South Africans who have saved up enough to cover the transfer duty and other property acquisition costs and have enough monthly income to afford a 100% bond cannot obtain finance. And, of course, the entrepreneurial South Africans – those who run their own businesses (self-employed) and property investors (especially those who already do have bonds), are simply cut out of mortgage finance running, regardless of their ability to service the loans.

And with government’s proposed credit amnesty on the cards, as well as the recent interest rate increase, which may signal a rising phase in the interest rate cycle, the availability of credit may become even more constrained in the near